UTC Goodrich Deal Impact

Moody’s Investors Service cut its rating outlook for United Technologies Corp. to “negative” from “stable” and said the conglomerate’s ratings face more pressure with its $16.4 billion purchase of airplane parts maker Goodrich Corp., The Associated Press reports.

Moody’s affirmed UTC’s senior unsecured and short-term ratings at A2, in the middle of investment range. But it said CEO Louis Chenevert’s comment last week that United Technologies will cut the stock it issues from $4 billion to $2 billion or less “notably entails more execution risk.”

The ratings service said that move will force the Hartford-based company into financing alternatives, such as asset sales, that are “less within the control of the company.”
Moody’s said United Technologies’ ratings are supported by its size and geographic scale, its diversified businesses and strong operating margins and free cash flow.

But it said leverage is expected to be high when the Goodrich acquisition closes at mid-year. Moody’s expects United Technologies to halt share repurchases and future acquisitions, using excess cash and stepped-up asset sales to deleverage after the Goodrich buy. The impact of this on KEVTA and its customers is likely reorganization and possible sale of certain businesses within UTC Fire & Security that supply equipment to us for our fire protection systems integration business. We will monitor this situation and mitigate any risk that arises.